The global economy showed unexpected resilience in 2023, growing moderately despite high inflation, interest rate hikes, and geopolitical tensions. While growth projections for 2024 remain lacklustre, the risk of a hard landing has receded as inflation falls faster than expected. However, short-term risks and long-term vulnerabilities remain (World Bank, 2024).
Inflationary pressures persist in many countries and could potentially be heightened by the geopolitical tensions in Eastern Europe and the Middle East, threatening energy supplies. As the effects of interest rate hikes materialize, major central banks have signalled high rates will continue in 2024 to control lingering inflation risks, presenting economic headwinds.
Economic outlooks diverge across developing economies. While rich countries largely recovered from the pandemic, developing economies lost ground. Conflict and extreme weather bring more uncertainty. Most low-income developing economies are projected to have a modest 5.0% growth in 2024, up from 4.0% in 2023. However, weak investment, commodity price volatility, and rising debt constrain growth.
Over a third of the developing economies risk debt crises as obligations mount. Elevated borrowing costs pressure government budgets, renewing fiscal deficit and debt sustainability concerns. In 2022, over 50 developing economies spent more than 10% of revenues on interest payments, with 25 spending above 20%.
The global labour market rebounded unevenly across developing economies. Wage growth failed to offset inflationary pressures in most countries, worsening the cost-of-living crises. In late 2023, food price increases raised hunger concerns. An estimated 238 million people experienced acute food insecurity in 2023, an increase of 22 million from 2022.
Global GDP growth is forecast to hold at 3.1% in 2024, slightly above earlier estimates, before rising modestly to 3.2% in 2025. However, the outlook faces both upside and downside risks. On the upside, inflation could moderate faster than anticipated, allowing an earlier monetary policy easing. On the other hand, commodity supply disruptions, persistent core inflation, fiscal austerity, and a worsening property sector crisis in China could restrain growth.
Policymakers face the delicate task of nurturing the disinflation process while rebuilding fiscal buffers and spurring productivity-enhancing reforms. Their ability to foster resilience through multilateral cooperation will be tested on issues like debt, climate change, and fragmentation. On balance, while a soft landing appears likely in 2024, growth is set to remain below pre-pandemic trends amid constraints on policy space. With the world vulnerable to disruptive shocks, achieving sustainable development underscores the urgent need for stronger global cooperation on reforms, debt relief, and increased investment.
Here are some steps you can take given the above outlook:
1. Budget conservatively - With growth expected to be moderate and risks tilted to the downside, it's prudent for households to budget conservatively, build savings, limit discretionary spending, and prepare for potential income shocks.
2. Control costs - With inflation still elevated, be proactive in finding ways to save on food, energy, housing and other expenses. Bulk buying, substituting cheaper brands or goods, and cutting back on non-essentials can help.
3. Manage debts wisely - As interest rates may rise further before declining, focus on paying down variable-rate debts and avoid taking on significant new debt without careful consideration.
4. Invest with diversification and balance - Diversify investments across asset classes and geographies in these uncertain times. Balance higher-risk assets like stocks with lower-risk fixed income and have a long-term perspective for investments.
5. Develop job skills - With labour markets softening in many countries, workers should look to develop their skills and keep improving their employability and earnings potential.
Adopting prudent financial habits, controlling costs, and boosting competitiveness can help you navigate the road ahead.